Microsoft Corp has ditched its efforts to compete with Apple’s iTunes and other online subscription services, after deciding that the licensing costs were too high for the business model to work. After a series of negotiations with content owners over the past year to sell their TV shows and movies via the Xbox platform, Microsoft has apparently pulled the plug.

According to a Reuters report, Microsoft executives balked at the high rates content owners were prepared to charge and quoted one potential programming partner as saying, “They built Microsoft TV, they demoed it for us, they asked for rate cards but then said ‘ooh ah, that’s expensive,’”.

The high cost is being attributed to the fact that Microsoft wanted to offer current popular shows and live networks on Microsoft TV instead of waiting as Netflix does with its service.

The would-be subscription service was designed as a video-on-demand (VOD) model, similar to Netflix or Amazon Prime Instant Videos. While it would still offer its Zune-branded VOD service for movie rentals, a subscription offering could give users access to more content for a low monthly or annual fee. Those plans are now on hold. Indefinitely.

However, the company will continue to offer TV shows on its Xbox platform. At the recent CES, Microsoft announced deals with Fox Broadcast, Fox News, IGN and “The Wall Street Journal.” The new Xbox interface will combine voice recognition with a universal search functionality that will enable users to find content across a variety of applications, including live TV, cable VOD, subscription services like Netflix and Hulu, and of course its own Zune Marketplace. By updating the user interface, Microsoft is allowing viewers to watch the content they want on whichever service is best for them.

This is not the first time that Microsoft tried to enter the TV market, but decided to give up. Remember MSN TV, and later, Microsoft TV, which promised to bring full interactivity to cable networks? It’s all a faded memory now.

Reuters said that things looked different last September, when Microsoft CEO Steve Balmer told financial analysts that the new Xbox TV platform would launch this past holiday season. Without going into specific details, Balmer said the service would be similar to that offered by Canal+ in France, Sky in the UK and Foxtel in Australia.

Last June, there were already signs that Microsoft found it difficult to strike deals with broadcasters when they announced a deal to bring YouTube to the Xbox, but failed to sign more content agreement.